New rules regarding converting a Traditional IRA to a Roth IRA. Who may convert and is it right for you?

1. Roth IRA Conversions 2010 New Opportunities for 2010

2. Introduction to Roth IRAs Contributions are made on an after-tax basis There’s no up-front tax benefit Qualified distributions are entirely free from federal income tax New rules for 2010 Caution: Different rules may apply for state tax purposes

4. Ability to contribute depends on income level and filing status

5. All contributions are after-tax (no up-front deduction)

6. Qualified distributions are entirely free from federal income taxes

7. For nonqualified distributions, earnings subject to federal income tax and 10% penalty tax may apply if under age 59½

8. No lifetime required distributions

12. Qualified Distributions - Example 2 Age 35 Establish first Roth IRA on June 1, 2010, by making a rollover from a 401(k) plan to the Roth IRA Must have qualifying event AND satisfy five-year holding period Five-year holding period begins January 1, 2010 Five-year holding period ends December 31, 2014 Tax-free qualified withdrawals available from this Roth IRA, and any other Roth IRA you own: In 2034, after you attain age 59½ After December 31, 2014, if you become disabled or die* After December 31, 2014, if you have first-time homebuyer expenses (up to $10,000 lifetime from all IRAs)* Qual event 59 ½ in 2034 5-year period starts 1/1/10 5 year ends 12/31/14 Est first Roth IRA 6/31/10 Tax-free dist *Tax-free dist after 12/31/14

13. Qualified Distributions - Example 3 You inherit a Roth IRA from your mother in 2010 Your mother established her first Roth IRA in 2007 by making a regular annual contribution Must have qualifying event AND satisfy five-year holding period Qualifying event is your mother’s death Five-year holding period begins January 1, 2007 Five-year holding period ends December 31, 2011 Tax-free qualified withdrawals are available from the inherited Roth IRA anytime after December 31, 2011 Qual. event in 2010 mother’s death 5-year period starts 1/1/07 5-year period ends 12/31/11 Tax-free dist after 12/31/11 Mother est. first Roth IRA in 2007

15. Your contributions come out first

16. Taxable earnings come out last

18. Converting a Traditional IRA to a Roth IRA Taxed at conversion as if you took a withdrawal (but 10% early distribution does not apply) Trade off immediate taxation for possibility of tax-free qualified distributions in future You can also convert SIMPLE IRAs (after two-year waiting period) and SEP IRAs to Roth IRAs

19. Ways to Convert a Traditional IRA to a Roth IRA Rollover Trustee-to-trustee transfer Same-trustee transfer

20. Calculating the Conversion Taxes Taxed as if you took a withdrawal from the traditional IRA 10% penalty tax doesn’t apply (but may be recaptured if you make a nonqualified withdrawal from your Roth IRA within five years of any conversion)

21. Calculating the Conversion Taxes Only deductible contributions and earnings If you’ve made only deductible contributions to your traditional IRAs, then the entire amount you convert is subject to income tax. IRA = Fully taxable conversion

22. Calculating the Conversion Taxes TAXABLE Deductible contributions and earnings NONTAXABLE Non-deductible contributions If you’ve made nondeductible (after-tax) contributions to your traditional IRA, any distribution consists of pro-rata amount of taxable and nontaxable dollars Can’t just convert nontaxable dollars in a traditional IRA for tax-free conversion IRA

23. Calculating the Conversion Taxes IRA #1 TAXABLE Deductible contributions and earnings TAXABLE Deductible contributions and earnings TAXABLE Deductible contributions and earnings IRA #2 NONTAXABLE Non-deductible contributions NONTAXABLE Non-deductible contributions NONTAXABLE Non-deductible contributions IRA IRA Must aggregate all traditional IRAs you own, including SEP and SIMPLE IRAs, when calculating the taxable amount of a withdrawal or conversion

25. First aggregate all traditional IRAs = $120,000 total balance

26. Then determine taxable percentage = 83⅓% ($100,000/$120,000)

28. Special Deferral Rule for 2010 Special rule applies only to conversions in 2010 Can report half of the conversion income on your 2011 federal income tax return, and the other half on your 2012 tax return Or can report all of the income in 2010

30. Can report $125,000 on 2011 return, and $125,000 on 2012 return

32. Converting Employer Plan Dollars to a Roth IRA Eligible distributions from 401(k), 403(b), 457(b), and qualified plans can be rolled over to traditional or Roth IRA Your employer will identify an eligible rollover distribution Amounts rolled over to a Roth IRA are taxed except for any after-tax contributions Rollovers to a Roth IRA in 2010 are eligible for special 2010 deferral rule Beginning in 2010 anyone can roll over to a Roth IRA, regardless of income limits or marital status--even non-spouse beneficiaries Rollovers from employer plans can be complicated, and can have serious tax implications

33. Using the New Rules to Fund Annual Roth Contributions You can contribute up to $5,000 to a Roth IRA in 2010 Individuals age 50 or older can make additional “catch up” contribution of $1,000 Annual contributions may be limited depending on income level and filing status:

34. Using the New Rules to Fund Annual Roth Contributions Even if you can’t contribute to a Roth IRA because of the income limits, you can contribute to a traditional IRA if you’re under age 70½ Anyone can convert a traditional IRA to a Roth beginning in 2010, regardless of income or marital status You can make nondeductible contributions initially to a traditional IRA Convert that traditional IRA to a Roth Remember to aggregate your traditional IRAs when calculating tax Traditional IRA Roth IRA First contribute to: Then convert to: Up to $5,000 in 2010 ($6,000 if age 50 or older)

35. Is a Roth Conversion Right For You?

36. Is a Roth Conversion Right For You?.

37. What if a Conversion Doesn’t Work Out? “Recharacterize!” You may be able to undo, or “recharacterize,” a conversion by carefully following IRS rules Deadline is due date for filing your tax return for year of conversion, plus extensions For example, you generally have until October 15, 2011, to undo a 2010 conversion Assets are transferred to traditional IRA; treated for tax purposes as if Roth conversion never occurred Can convert traditional IRA back to a Roth after waiting period, which can be as short as thirty days.

38. Conclusion I would welcome the opportunity to meet individually with each of you to address any specific concerns or questions that you may have.

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